Behavioral convergence properties of Cournot and Bertrand markets: An experimental analysis
This paper reports an experiment that examines the relative convergence properties of differentiated-product Cournot and Bertrand oligopolies. Overall, Bertrand markets tend to converge to Nash equilibrium predictions more quickly and more completely than Cournot markets. Further, when products are close substitutes Bertrand markets respond more quickly to an announced nominal shock. As products become weaker substitutes, however, an increased tendency for tacit collusion degrades convergence in Bertrand markets. This effect is particularly pronounced following a nominal shock. Our results suggest that in an oligopoly context variations in decision error costs dominate a ‘Strategic Substitutes Effect’ isolated in previous experimental research.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Haltiwanger, John & Waldman, Michael, 1985.
"Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity,"
American Economic Review,
American Economic Association, vol. 75(3), pages 326-40, June.
- John Haltiwanger & Michael Waldman, 1983. "Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity," UCLA Economics Working Papers 303, UCLA Department of Economics.
- Fernando Vega-Redondo, 1997.
"The Evolution of Walrasian Behavior,"
Econometric Society, vol. 65(2), pages 375-384, March.
- Heemeijer, P. & Hommes, C.H. & Sonnemans, J. & Tuinstra, J., 2006.
"Price Stability and Volatility in Markets with Positive and Negative Expectations Feedback: An Experimental Investigation,"
CeNDEF Working Papers
06-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Heemeijer, Peter & Hommes, Cars & Sonnemans, Joep & Tuinstra, Jan, 2009. "Price stability and volatility in markets with positive and negative expectations feedback: An experimental investigation," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1052-1072, May.
- Jan Tuinstra & Joep Sonnemans & Cars Hommes & Peter Heemeijer, 2006. "Price Stability and Volatility in Markets with Positive and Negative Expectations Feedback: An Experimental Investigation," Working Papers wp06-18, Warwick Business School, Finance Group.
- Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2002.
"Stability of the Cournot Process - Experimental Evidence,"
Bonn Econ Discussion Papers
bgse1_2002, University of Bonn, Germany.
- Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2002. "Stability of the Cournot process - experimental evidence," International Journal of Game Theory, Springer, vol. 31(1), pages 123-136.
- Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1997. "Stability of the Cournot Process - Experimental Evidence," Experimental 9707002, EconWPA.
- Sigrid Suetens & Jan Potters, 2007.
"Bertrand colludes more than Cournot,"
Springer, vol. 10(1), pages 71-77, March.
- Suetens, S. & Potters, J.J.M., 2007. "Bertrand colludes more than Cournot," Other publications TiSEM 884b5bf4-2acb-4ce8-b2bf-4, Tilburg University, School of Economics and Management.
- SUETENS, Sigrid & POTTERS, Jan, 2005. "Bertrand colludes more than Cournot," Working Papers 2005037, University of Antwerp, Faculty of Applied Economics.
- Carlo Altavilla & Luigi Luini & Patrizia Sbriglia, 2005.
"Social Learning in Market Games,"
Labsi Experimental Economics Laboratory University of Siena
003, University of Siena.
- R. D. Theocharis, 1960. "On the Stability of the Cournot Solution on the Oligopoly Problem," Review of Economic Studies, Oxford University Press, vol. 27(2), pages 133-134.
- Ernst Fehr & Jean-Robert Tyran, 2007.
"Limited Rationality And Strategic Interaction: The Impact Of The Strategic Environment On Nominal Inertia,"
CAMA Working Papers
2007-26, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Ernst Fehr & Jean-Robert Tyran, 2008. "Limited Rationality and Strategic Interaction: The Impact of the Strategic Environment on Nominal Inertia," Econometrica, Econometric Society, vol. 76(2), pages 353-394, 03.
- Jean-Robert Tyran & Ernst Fehr, 2002. "Limited Rationality and Strategic Interaction - The Impact of the Strategic Environment on Nominal Inertia," University of St. Gallen Department of Economics working paper series 2002 2002-25, Department of Economics, University of St. Gallen.
- Ernst Fehr & Jean-Robert Tyran, 2004. "Limited Rationality and Strategic Interaction - The Impact of the Strategic Environment on Nominal Inertia," Levine's Bibliography 122247000000000092, UCLA Department of Economics.
- Ernst Fehr & Jean-Robert Tyran, . "Limited Rationality and Strategic Interaction, The Impact of the Strategic Environment on Nominal Inertia," IEW - Working Papers 130, Institute for Empirical Research in Economics - University of Zurich.
- Davis, Douglas, 2009.
"Pure numbers effects, market power, and tacit collusion in posted offer markets,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 72(1), pages 475-488, October.
- Douglas D. Davis, 2006. "Pure Numbers Effects, Market Power, and Tacit Collusion in Posted Offer Markets," Working Papers 0603, VCU School of Business, Department of Economics, revised Jan 2009.
- Milgrom, Paul & Roberts, John, 1991. "Adaptive and sophisticated learning in normal form games," Games and Economic Behavior, Elsevier, vol. 3(1), pages 82-100, February.
- McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
- Christoph Engel, 2006. "How Much Collusion. A Meta-Analysis On Oligopoly Experiments," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2006_27, Max Planck Institute for Research on Collective Goods.
- Potters, J.J.M. & Suetens, S., 2006.
"Cooperation in Experimental Games of Strategic Complements and Substitutes,"
2006-48, Tilburg University, Center for Economic Research.
- Jan Potters & Sigrid Suetens, 2009. "Cooperation in Experimental Games of Strategic Complements and Substitutes," Review of Economic Studies, Oxford University Press, vol. 76(3), pages 1125-1147.
- Potters, J.J.M. & Suetens, S., 2009. "Cooperation in experimental games of strategic complements and substitutes," Other publications TiSEM 694e692f-f551-421e-8cf0-a, Tilburg University, School of Economics and Management.
- Cox, James C. & Walker, Mark, 1998. "Learning to play Cournot duopoly strategies," Journal of Economic Behavior & Organization, Elsevier, vol. 36(2), pages 141-161, August.
- Rosenthal, Robert W, 1989. "A Bounded-Rationality Approach to the Study of Noncooperative Games," International Journal of Game Theory, Springer, vol. 18(3), pages 273-91.
- Plott, Charles R., 1989. "An updated review of industrial organization: Applications of experimental methods," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 19, pages 1109-1176 Elsevier.
- Anderson, Simon P. & Goeree, Jacob K. & Holt, Charles A., 2001. "Minimum-Effort Coordination Games: Stochastic Potential and Logit Equilibrium," Games and Economic Behavior, Elsevier, vol. 34(2), pages 177-199, February.
- Rassenti, Stephen & Reynolds, Stanley S. & Smith, Vernon L. & Szidarovszky, Ferenc, 2000. "Adaptation and convergence of behavior in repeated experimental Cournot games," Journal of Economic Behavior & Organization, Elsevier, vol. 41(2), pages 117-146, February.
- John Haltiwanger & Michael Waldman, 1989. "Limited Rationality and Strategic Complements: The Implications for Macroeconomics," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 463-483.
When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:80:y:2011:i:3:p:443-458. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.